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Think tank produces a radical proposal to replace PFI- The Herald

Brian Currie, The Herald, 16 October 2009

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A leading Scottish think-tank has suggested an alternative method of financing and managing major public projects such as new schools, hospitals and transport.

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Reform Scotland says its new strategy, called Scottish Capital Partnerships (SCP), would replace the former Scottish Executive’s Private Finance Initiative and redefine the role of the present SNP Government’s Scottish Futures Trust (SFT).

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PFI has been constantly criticised for the huge profits it generates for private firms while SFT has been attacked for failing to deliver a range of key infrastructure projects.

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Reform Scotland chairman Ben Thomson said: “We desperately need a new vehicle to get momentum back into public-sector infrastructure projects and, after two years of achieving nothing under the Scottish Futures Trust, our proposals provide that vital mechanism.”

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Under the think-tank’s proposals for SCP, projects would continue to be financed jointly by the public and private sectors but with changes which Reform Scotland claims would avoid the pitfalls of PFI.

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Most of the money for SCP projects would come primarily from public borrowing at government interest rates. Under PFI, money was borrowed at much higher commercial rates but with risk remaining with the taxpayer.

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Reform Scotland suggests management companies should submit bids to build and run projects and put up the equity risk capital.

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Mr Thomson said: “This is usually around 10% of the total capital required and it will immediately act as an incentive to management companies to ensure projects are delivered on time, within budget and run well for the life of the asset.

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“Management companies will bring the skills, innovation and efficiencies which until now have often been lacking in public-sector infrastructure projects.”

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The think tank’s report, Power to Build, says important lessons need to be learned from mistakes made under the PFI and Public Private Partnership schemes.

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It says the SFT’s role should be to act as an independent facilitator, adjudicator and regulator of projects under a more flexible scheme.

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Other key elements would be efficiency through competition between the private, public and third sectors, flexibility to enable the best elements of a bidding process to combine, and public-sector ownership of assets.

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Mr Thomson said: “Our proposals would involve no additional oncost. Indeed, we believe they will lead to significant savings for the taxpayer.”

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